Stocks storm back

CBS.MarketWatch.com

NEW YORK (CBS.MW) -- Following an opening-hour selloff featuring panic-dumping of many Internet issues, U.S. stocks turned on a dime to finish Thursday's session with lush rises.

"The market's very oversold, and it needed a rally," said Arnie Owen, managing director of equities at Cruttenden Roth. "I don't see widespread buying, but I see selective buying."

The Dow Jones Industrial Average
DJIA, +0.10%
advanced 119.05 points, or 1.1 percent, to 10,793.82. The gauge had lost as much as 108.59 points earlier in the day. It was the best percentage showing for the storied benchmark in five weeks.

The Nasdaq Composite
$compq
ascended 25.81 points, or 1.0 percent, to 2,565.81 after being down as much as 2.6 percent in the opening hour. The Standard & Poor's 500 Index
SPX, +0.18%
rose 0.6 percent. The Russell 2000 Index
RUT, +1.60%
of small-capitalization stocks was virtually unchanged.

The session's early weakness and late strength was the diametric opposite of the market's behavior over the past week, and encouraged traders.

By the closing bell, the technology sector ruled the roost, sparked by the most kinetic move in Internet issues ($GIN) in nearly seven weeks. The Net group had staggered to a 9 percent loss in the opening hour before regaining its footing.

The dramatic turnaround in Web issues immediately sparked a debate as to whether or not a durable bottom was formed in the group.

"It is a reversal in the Internet group, but not a definitive bottom," offered Roy M. Blumberg, portfolio manager at Sheer Asset Management. "The stocks will likely rally from here, but the magnitude of the decline and the magnitude of the rally don't suggest that you could absolutely say these stocks have bottomed and are going to start a major move to the upside.

"Instead, you can say they're certainly washed out in the short run and are likely to have further rally."

The market's breadth indicators were poor, though significantly improved from the morning downdraft. New York Stock Exchange losers bested winners byover 3 to 2 vs. the 3-to-1 ratio seen earlier. And on the Nasdaq Stock Market, the margin stood at 23 to 17 in favor of decliners. At one point, it was at 3.5 to 1.

On the Big Board floor, turnover bulged 9 percent to 857 million shares, the most in over five weeks.

Many seasoned observers have felt that the stock market needed to see a climactic day with big volume, pitiful breadth, and bungee-like volatility before a durable bottom could be formed. Thursday morning's action, though far from the extremes witnessed at other major bottoms, was a step in that direction -- especially in the Internet segment.

In the day's major economic report, second-quarter nonfarm productivity, or output per worker, rose at an annual pace of 1.3 percent. That was a drop-off from the revised 3.6 percent growth of the first quarter and below most forecasts of a 2.2 percent rise. In addition, nonfarm unit labor costs grew 3.8 percent in Q2, the biggest rise since 1997's fourth quarter. See full story.

In the Treasurys, which would have been expected to fall on the productivity and unit labor cost data, advanced on flight-to-quality buying. The 30-year Treasury rose 28/32, to yield
TYX, +0.94%
6.052 percent.

The bond rally, also aided by the pricing of some new issues, came a day ahead of the July jobs release.

"If Friday's employment report is a benign number, the stock rally can continue," Owen continued. "Everybody's getting nervous because there hasn't been inflation for so long, and the vigilance is starting."

America Online (AOL
AOL
: news, msgs) fell 3 1/2 to 83 15/16 as institutions dumped the shares, feeling that the company's competitive position might be altered. The Wall Street Journal reported that Microsoft executives are laying plans to hasten the trend toward low-price, or even free, Internet access. Volume was climactic, with 57 million shares changing hands, the busiest pace since the final day of 1998. The stock's average turnover is about 22 million shares. At one point, the shares traded as low as 76. Microsoft (MSFT
MSFT, +0.35%
: news, msgs) shares advanced 13/16 to 85 3/4. See full story.

Most other Internet service providers fell in sympathy with AOL. EarthLink Network surrendered 3 5/16 to 37 1/16, MindSpring Enterprises 3/4 to 26, and Prodigy Communications 1 1/4 to 17.

A few ISPs bucked the bearish tide. Verio was ahead 3 7/8 to 67 7/8 and Internet America inched up 1/8 to 13 7/8. PSINet idled at 43 1/2.

GoTo.com (GOTO
GOTO
: news, msgs) said it lost 20 cents on a pro forma basis in the second quarter, 2 cents better than the First Call forecast but 9 cents worse than the year-ago tally. Shares of the Internet search service operator pulled back 4 13/16 to 24 13/16.

Anchor Gaming (SLOT
SLOT, +11.11%
: news, msgs) squeaked past the First Call projection by a penny when it reported fiscal fourth-quarter operating net of $1.23 a share vs. the $1.42 of a year ago. The stock dipped 9/16 to 49 1/16.

Sterling Software (SSW
SSW, +0.37%
: news, msgs) reported fiscal third-quarter operating earnings of 46 cents a share, a penny richer than the First Call view and 14 cents more than the figure of a year ago. The shares eased 1/8 to 23 11/16.

Teleglobe (TGO
TGO, +0.00%
: news, msgs) said it earned a nickel a share in the second quarter, 2 cents leaner than the First Call expectation and 17 cents worse than in the same period of 1998. Shares of the telecommunications network operator were down 1 5/8 to 19 3/4.

Starwood Hotels HOT, -0.11%
added 11/16 to 26 3/16 after matching the First Call estimate with its second-quarter earnings report of 43 cents a share. A year ago, the company earned 29 cents. See full story.

UnitedHealth Group UNH, +0.00%
moved forward 7 3/8 to 62 15/16. The health insurance provider netted 76 cents a share in the second quarter, 2 cents richer than the First Call forecast and a dime north of the year-ago tally. See full story.

Wit Capital witc
put on 4 1/8 to 21 1/4. The online investment banker will be the exclusive tenant on the America Online After Hours Center, slated for launch this fall in AOL's Personal Finance Channel. The center will provide AOL members with information about the ability to trade in stocks after normal market hours.

Teen apparel retailer Buckle BKE, +0.00%
had a rough go of it, crumbling 9 15/16 to 18 1/4 after guiding the Street to expect second-quarter results of 27 cents to 28 cents a share. The First Call survey of analysts had expected 31 cents.

A few IPOs excelled. Internet Capital Groupicge
more than doubled to 24 7/16 after the electronic commerce holding company sold 14.9 million shares at $12 each. See full story.

And Homestore.com homs
moved up 2 3/4 to 22 3/4. The real estate concern sold 7 million shares at $20 apiece.

ITwo Technologies itwo
was ahead 4 5/8 to 30 13/16. The developer of supply chain management software for the scheduling of manufacturing processes will team with IBM IBM, +0.07%
to offer customers integrated solutions to their e-business requirements.

After the close of Thursday's activity, Verio vrio
said it lost $1.22 a share in the second period, 8 cents better than the First Call projection and 22 cents narrower than the year-ago loss. In afterhours Instinet action, the stock changed hands at 67 3/8 from a regular-session close of 67 7/8.

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LOOKING FORWARD

Friday's slate is dominated by the July employment report, due out at 8:30 a.m. ET. The report is considered critically important due to its early release date, ability to estimate other indicators, and broad coverage of many economic sectors. Since job creation directly influences personal income, the employment report provides valuable information on consumer spending levels, which in turn make up approximately two-thirds of gross domestic product. The employment data are obtained from two surveys. The first, referred to as the establishment, or payroll, survey, is taken from employers' records and deals with earnings and hours worked. The Current Population Survey, known as the household survey, is based on interviews of households and is conducted by the Bureau of the Census. From the point of view of workers, it covers data on the work status of individuals. The employment report is normally released on the first Friday following the end of a month. Most economists expect July nonfarm payrolls to have increased by 216,000 jobs, with the unemployment rate unchanged at 4.3 percent. Average hourly earnings are forecast to have risen by 0.3 percent. See and Also, , , and

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